Goldman Sachs downgrades SBI, ICICI Bank, Yes Bank; upgrades Bajaj Finance and reiterates buy on HDFC Bank. Check detail
- Stock Market Today: Goldman Sachs downgraded SBI, ICICI Bank, Yes Bank, as it sees multiple challenges ahead. Goldman Sachs believes that proverbial Goldilocks period (strong growth & profitability) is over for the financial sector. However, it upgraded Bajaj Finance and reiterated buy on HDFC Bank.
Goldman Sachs downgrades State Bank of India (SBI), ICICI Bank, Yes Bank, as its sees multiple challenges ahead for the financial sector companies. However it upgrades Bajaj Finance and reiterated buy on HDFC Bank.
Goldman Sach analysts said that the earnings of financial sector are facing multiple challenges ahead and thereby they have cut the earnings estimates across companies in their coverage universe by 5% and 2% on an average over FY25 and FY26 respectively .
Goldman Sachs analysts believe the proverbial Goldilocks period i.e the period of strong growth & strong visible profitability, is over for the financial sector in the near-term and headwinds are increasing .
The major headwinds that Goldman Sachs highlighted include-
1.Rising pressure on cost of funds due to structural challenges in the funding environment
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2) growing concerns on rising consumer leverage posing potential asset quality challenges, particularly in unsecured lending ($127 billion loan book in the sector) leading to higher credit costs and hence they prefer commercial retail over consumer retail which is expected to grow faster and offers a much better returns profile
3. pressure on operating costs due to elevated wage inflation as well as the need to expand the distribution network for future deposit growth.
As per Goldman Sach ROAs for the financial companies are expected to moderate from hereon. ROA ratio is company's net, after-tax income divided by its total assets.
The valuations of financial institutions are at a comfortable level though, they said
The Indian banks had witnessed sharp ROA expansion during FY20-3QFY24 period. Goldman Sachs analysts believe that the ROAs will now start moderating given continued pressure on margins which they expect to extend to FY25.
Also a slower loan growth as Loan-Deposit ratios are stretched, will impact ROAs. Further the sector will have to repair its balance-sheet mix and this, coupled with the need of building capacity, should keep cost-to-income levels elevated.
Goldman Sachs believe all players face the dilemma of maintaining market share or compromising margins amidst the backdrop of stronger balance sheets across the system.
Goldman Sachs thereby have downgraded State Bank of India, ICICI Banks ratings to Neutral from Buy and Yes Bank ratings to Sell from Neutral . Goldman Sachs sees 4% downside for SBI and 3% upside for ICICI Bank. However for Yes Bank Goldman Sachs analysts see a 37% downside.
However Goldman Sachs has upgraded Bajaj Finance to Neutral from Sell as they sees 2% upside for the stock while they reiterate Buy ratings on HDFC Bank expecting a 33% upside.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions
market share or compromising margins amidst the backdrop of stronger balance sheets across the system
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